The company is benefiting from improving fundamentals and lower costs. The company is also benefiting from declining average gas costs as well. The company has strong cash flow that drives dividend increases and stock buybacks.
The company has strong cash flow, which drives dividend increases and stock buybacks. The company continues to increase its share repurchase program and announced that the Board has approved the purchase of up to 7.9 million common shares representing about 10% of the total public float.
Methanex is currently valued at 10.2x our 2008 earnings of $2.66, which is at a sharp discount to the industry median of 14.1x. Due to improving methanol fundamentals, we believe that a revaluation of the stock is warranted, and feel the stock should trade at 13.2x our 2008 earnings. This implies a $35 target and thus a Buy rating.
Brazil's Gerdau a Buy Up to $55
We are upgrading our recommendation on Brazilian steelmaker Gerdau S.A. ( GGB) to Buy from Hold, after the company posted excellent results in the first quarter. Gerdau has been benefiting from rising steel prices, despite a challenging international economic environment in recent months.
Continued demand for steel from China, a strong Brazilian economy, and its strategy to grow through acquisitions create a positive environment for Gerdau. Despite the recent hike in the interest rate, we believe the Brazilian economy remains encouraging, mainly after being upgraded to investment grade by Standard & Poor's. Gerdau's investments in different companies should also generate huge revenues and earnings growth in the following years.
The steel industry trades at a discount to the S&P due to risks of a slowdown in the U.S., increasing Chinese production and rising prices for raw materials and energy. The continued strength of the Brazilian real and more recently, the company's exposure to the U.S. housing industry have become sources of high concern. Despite these problems, we believe Gerdau should trade at a premium, and we have a target price of $55 on the stock.
What to Watch with Broadcom
The basic underlying theme to watch at Broadcom (BRCM) continues to be the progress with the launch of new, more highly integrated IC products at more advanced progress geometries. This is the ultimate (and most likely the only) differentiating factor in every end-market where Broadcom competes. Keeping in mind the 2x sequential growth in sales of integrated Bluetooth+FM chips for cell phones in the last quarter, we also think that the upcoming integrated HSUPA chipset for cell phones with RF, Bluetooth, and FM functionality will add to the sales growth.
Broadcom consistently introduces highly integrated solutions for some of the fastest growing markets in the technology sector.
